Sub-investment grade and merger and acquisition deals will increase in the second half of the year, while the asset-backed securities market is still seeking a bottom, the head of Barclays PLC's (BCS) investment banking unit said Monday.

"The worst seems to be behind us," Jerry del Missier, president of Barclays Capital, said Monday following the release of an earnings report that showed a particularly strong performance for the investment banking business. "The capital markets-related crisis we are in is coming towards the end."

The Barclays executive remains cautiously optimistic on capital markets activity. He said he believes equity and debt capital markets are operating at sustainable levels "because they are driven by underlying flows and demand for raising equity and debt capital markets products, and a likely increase in M&A activity."

The capital markets, which were hard hit by the credit crisis last year, started to open up in the second quarter. As banks reported stronger second-quarter results and capital markets rebounded, the second half of the year is poised for further growth.

"A lot of the momentum from the first quarter carried over into the second quarter," only with "better quality underlying businesses" because of the "reopening of a number of capital markets," he said Monday in an interview with Dow Jones Newswires.

In April, del Missier correctly predicted that equity and fixed-income underwriting and merger and acquisition advice were going to pick up at banks in the second quarter - it was a minority view at the time.

Barclays reported early Monday that net profit in the first half of the year rose 10% to GBP1.89 billion. The U.K. bank got a boost from its purchase of Lehman Brother's North American operations last September, which improved performance in Barclays Capital.

While some capital market activity will slow due to the coming dog days of summer, the capital markets are "healthy," del Missier said Monday.

M&A activity is set to increase, and the corporate sector "is definitely looking to re-engage," he said.

Flows in fixed-income markets have fallen a little, he said, but sub-investment grade activity should pick up. Unlike the investment-grade market, the sub-investment-grade market hasn't yet seen a rebound from the financial crisis. Now, though, as confidence comes back to the market and more market participants are willing to take risks again, they are looking at debt opportunities again.

But challenges remain. Loan and structured credit losses haven't run their course, he said.

"Asset-backed securities, whether it's commercial properties or other loans receivable, are clearly not operating at full capacity," he said.

The asset-backed securities market hasn't rebounded fully, and "we need to see more clarity or consensus that asset prices have bottomed before you see those markets come out of the depressed state they have been in for a while now."

He said, "there is still not a lot of refinancing available for those assets."

-By Jessica Papini, Dow Jones Newswires; 212-416-2172; jessica.papini@dowjones.com

-By Matthias Rieker, Dow Jones Newswires; 212-416-2471; matthias.rieker@dowjones.com